Leaders learn to live with terrorism

For the third year since terrorists reduced New York's twin towers to rubble in September 2001, risk and security dominate the agenda of this week's World Economic Forum, an annual meeting of the world's business and political elite in Switzerland.

But the Forum's paying customers, about 1000 world business leaders, say they now worry about more traditional economic threats such as currency fluctuations, trade and competition.

Risk analysts, chief executives and economists say companies have become more realistic - or fatalistic - in the past two years about exposure to terrorism.

A survey of 1400 chief executive officers found global terrorism only tied for sixth on a list of 11 top threats that the executives see facing their companies. The survey, by services firm PricewaterhouseCoopers, ranked over-regulation, increased competition, currency fluctuations, deflation and the loss of key personnel as bigger threats.

The survey's findings match the experience of Kroll Inc, a risk-management consultant in New York. In the wake of September 11, Kroll received so many demands for security assessments that the company could barely handle them, says Ann Tiedemann, managing director for Europe, the Middle East and Africa. But not one company followed through on Kroll's recommendations to improve security by altering building structures, changing travel or modifying crisis-management plans.

By contrast, business generated by companies trying to make sure that they or their business partners won't turn out to be the next Enron or Parmalat has turned into a growing and important revenue stream for Kroll.

Terror wasn't even US executives' big worry last year in the insurance area - where polices in the US, as in Europe before it, now exclude losses resulting from terrorism, leaving business more exposed than in 2001.

Executives are fretting more about torts, said Robert Hartwig, senior vice-president of the Insurance Information Institute in New York. Rising US jury awards cost $US283 billion ($367 billion) in 2002, or 2.2 per cent of US gross domestic product, he said.

That leaders from Iran, Pakistan and Iraq are at the forum suggests the diplomatic landscape has shifted in some promising ways since a year ago, when the meeting fell in the midst of the trans-Atlantic dispute on whether to invade Iraq.

The forum will also be checking the pulse of the US-European relationship. French Foreign Minister Dominique de Villepin is holding a dinner where he will explain La Mission, or how France views its role in the new world order. Later, he will get to fire questions at Robert Kagan, the US academic who wrote that Americans were from (warlike) Mars, while Europeans were from (pacifist) Venus. The session's title: Venus Bites Back.

The heavyweight US team headed by Vice-President Dick Cheney includes Secretary of State Colin Powell and Attorney-General John Ashcroft, bent on building bridges. "This is opportunity for us. We look at this as an opportunity, not as entering hostile territory," said a Justice Department spokesman.

The Pricewaterhouse survey asked executives whether they were more or less aggressive in taking risks than 12 months ago. Some 48 per cent said they were more aggressive, 20 per cent said they were less so. Thirty-one per cent said they had not changed, while 1 per cent didn't know.

None of these signals, however, suggest terrorist groups such as al Qaeda are any less potent a threat. Five of the forum's 10 agenda-setting seminars deal with issues related to security: terrorism, Iraq, risk, geopolitics and human security.

The chief executive of Pricewaterhouse's US practice, Dennis Nally, says that while the sharp focus on geopolitics and terrorism in recent years was necessary, it had costs. As an example, he cites the determination of US companies, in particular, to ensure they are compliant with new legislation spawned by September 11, such as requirements that companies establish and certify internal control systems to avoid involvement in money laundering.

"We have a sense that companies have become less risk-oriented than makes good business sense at this time," he says. And if countries don't take risks, they won't hire or invest as much as they should to grow in the medium term, reducing growth in the economy.

The Pricewaterhouse survey, however, suggests that may be starting to change, says the company's global CEO, Sam DiPiazza.

"We heard CEOs say they had processes in place [to manage risk] much more than they did a few years ago," he says. "The more they feel good about that, the more they feel good about pushing the risk."